Financial development and economic growth: Theory and a survey of evidence
This paper presents a simple endogenous growth model to demonstrate the role of financial development in economic growth. It further explores the causal relationship between financial development and economic growth. Lastly, it reviews the empirical evidence on the relationship between financial development and economic growth. In reviewing the empirical literature the paper highlights issues worthy of consideration in future empirical studies on the finance-growth nexus, especially in developing countries. Such issues among others include appropriate indicators of financial development that will best capture the functions perform by the financial system and the empirical modelling framework.